401(k) Match for Student Loan Repayments: What You Need to Know

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3. Can I Use My 401(k) as Collateral for a Loan?
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1. Can I Use My 401(k) to Buy a House?
2. Will a Loan on My 401(k) Affect My Mortgage?
3. Using Your 401(k) to Pay Off a Mortgage?

1. Can I Use My 401(k) to Payoff My Student Loans
2. 401(k) Match for Student Loan Repayments: What You Need to Know

At the end of 2022, the student loan debt load in the United States stood at approximately $1.76 trillion. By the end of the first quarter of 2023, it was $1.77 trillion. The nation's student debt continues to climb, totaling 37% of U.S. consumers' total outstanding debt—down a few percentage points from 2020's 40.1% and 2021's 39.1%, but still more than one-third of all consumer debt.

People across all age groups struggle to balance student debt and retirement savings. A study conducted by CNBC and Acorns found that 81% of people with student loans have needed to delay important life goals, such as buying a home or retirement. But as of 2023, you have some help building your retirement funds—your employer can make a matching contribution to your 401(k) while you make your payments.

Key Takeaways

• The IRS ruled that employers could make 401(k) contributions for employees who are paying off student debt and unable to make their own direct 401(k) contributions.
• The SECURE 2.0 Act of 2022 solidified this employee benefit, allowing employers to match retirement contributions for workers paying off their student loans.
• Employers can help employees save for retirement and pay off student loans.
  

Understanding Employee Student Loan Repayments with 401(k) Contributions

Secure Act 2.0

The Securing a Strong Retirement Act (SECURE 2.0 Act) builds on the work of the Setting Every Community Up for Retirement Enhancement (SECURE) Act that became law in December 2019. The sweeping law included a provision that allowed employers to adopt programs that match 401(k) contributions with employee student loan repayment. It specified that vesting schedules for matching contributions for employee student loan payments be the same as all other matching contributions.

The SECURE 2.0 law eased employer compliance concerns. Without this law, employers had to work with the IRS on an individual basis to establish this kind of employer program for 401(k) matching for student loan payments.

The SECURE 2.0 legislation had strong bipartisan support. It was signed into law by President Biden on Dec. 29, 2022, as part of the Consolidated Appropriations Act (CAA) of 2023.

The ruling allows employers to contribute to eligible employees’ 401(k)s. The employees must make a payment from their eligible earnings toward their student loans during the same pay period as the contribution.

What It Means for Employers

Employer 401(k) matching for student loan repayment offers a tax advantage over other approaches to employer support for loan repayment. If an employer were to make student loan payments for the employee, the payment would be taxable. By contributing to a tax-advantaged retirement plan, employers avoid taxes on the contribution.

Employers can also offer student loan repayment programs as a recruiting and retention tool.

Do All Employers Offer 401(K) Matching for Student Loan Repayments?

As of the passing of SECURE 2.0, the Internal Revenue Service (IRS) allows all employers to make matching contributions to eligible employees' 401(k)s.

Should You Invest in Your 401(K) If You Have Student Loans?

Many Americans put off saving for retirement because of their student loans, but retirement planning is best started early. If you start saving for retirement early—even if it's just your employer matching contribution—you have more time to take advantage of compounding.

How Did the Rules on 401(K) Matching and Student Loan Repayment Change?

The Securing a Strong Retirement Act (SECURE 2.0) authorized linking 401(k) matching contributions to employee student loan repayment. It was part of the Consolidated Appropriations Act (CAA) of 2023. The law gives all employers the option of offerring this benefit to their employees.

The Bottom Line

Before the SECURE 2.0 Act, employers wanting to pursue 401(k) matching for employees repaying their student loans needed to work with the IRS to determine if they could launch that program. With the passing of the SECURE 2.0 Act, all employers can offer this benefit.

1. Federal Reserve System. “Consumer Credit—G.19.”
2. SurveyMonkey, Curiosity at Work. “CNBC|Momentive Poll: ‘Invest in You’ January 2022.”
3. Internal Revenue Service. “Private Letter Ruling 201833012.”
4. U.S. Congress. “H.R.2617—Consolidated Appropriations Act, 2023: Text: Division T—SECURE 2.0 Act of 2022.”
5. Society for Human Resource Management. “House Passes ‘SECURE Act 2.0,’ Requiring Automatic Enrollment in Retirement Plans.”
6. U.S. Senate Committee on Finance. "SECURE 2.0 Act of 2022," Page 2, 3.
7. Society for Human Resource Management. “A 401(k) Twist on Student-Loan Aid.”
8. U.S. Office of Personnel Management. “Student Loan Repayment.”

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1. How Do 401(K) Loans Work?
2. Employers Offer Alternatives to 401(k) Loans
3. Can I Use My 401(k) as Collateral for a Loan?
4. How to Pay Back a 401(k) Loan
5. 401(k) Loan vs. IRA Withdrawal: What's the Difference?

1. 401(k) Loans: Reasons to Borrow
2. 8 Reasons to Never Borrow From Your 401(k)
3. Are 401(k) Loans Taxed?
4. How to Calculate Early Withdrawal Penalties on a 401(k) Account

1. Can I Use My 401(k) to Buy a House?
2. Will a Loan on My 401(k) Affect My Mortgage?
3. Using Your 401(k) to Pay Off a Mortgage?

1. Can I Use My 401(k) to Payoff My Student Loans
2. 401(k) Match for Student Loan Repayments: What You Need to Know

transfer assets from another, previous retirement account or plan. For example, if you leave a job, in most circumstances, you can make a tax-free transfer of your 401(k) plan assets to a Rollover IRA at a brokerage firm or mutual fund company, severing ties with your old employer and giving you more control over where your capital is invested." width="400" height="300" />

A 401(k) plan is a tax-advantaged retirement account offered by many employers. There are two basic types—traditional and Roth. Here’s how they work.

Vesting is a legal term common to employer-provided benefits that means to give or earn a right to a present or future payment, asset, or benefit.

A Roth 401(k) is an employer-sponsored retirement savings account that is funded with after-tax money. As long as certain conditions are met, withdrawals in retirement are tax-free.

The CSRS provided the retirement, disability, and survivor benefits for most U.S. civilian service employees working for the federal government.

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